Pandora was clear in its announcement on Monday: it was buying certain assets of streaming service Rdio – technology and IP – while hiring a number of its employees. But it wasn’t buying the business as a whole.

“The business was challenged, and financially would have been a drain for us,” Pandora CFO Mike Herring told analysts, as we reported yesterday. The scale of that challenge was revealed overnight in Rdio’s bankruptcy filing, and the numbers don’t make for pretty reading.

“At the time of the bankruptcy filing, Rdio has more than $190 million in secured debt and about $30 million of unsecured debt,” noted The Hollywood Reporter, which got its hands on the filing.

“Much of the secured debt is owed to Pulser Media, which provided the bulk of the company’s financing since its inception in 2008 and is now a majority owner.”

But in terms of unsecured creditors, Rdio owes $2.7m to set-top box maker Roku; $2.4m to Sony Music; $1.25m to ticketing firm AXS Digital; $1.2m to Shazam; $613k to Warner Music; $500k to Facebook; $294k to Universal Music and $135k to Merlin.

The filing also reveals Rdio’s monthly cashflow: the service was generating $1.5m a month from subscriptions, up to $150k a month from ads, but was spending $4m a month on operating costs, royalty payments and salaries – in other words, it was losing more than $2m a month.

Which reminds us of our interview with Rdio CEO Anthony Bay in June this year: “What we do, what Spotify does: it’s a retail business not an internet business,” he told us.

“Your margins are not high, but they’re understood – they’re in the high 20s to 30s and that’s not moving a ton. It’s been that way since downloads came out, and it’s the same for digital movies, about 70/30,” he continued.

“That’s where you have to design your business model around that structure, and learn to be incredibly efficient in terms of your cost structure. And figure out how you eventually make money. I feel good about our trajectory towards making money, where others are struggling. Which is not to say we’re profitable now.”

You can say that again. Rdio had other problems, outlined in another article published overnight by The Verge based on interviews with current and former staff. It cites the company’s lack of a long-term marketing chief, and an over-focus on some niche features like its play queue are both cited. But it comes back to the tough economics of streaming music.

“Because of the content licensing deals, the margins for the business were so incredibly thin. No matter what we did, the labels made the lion’s share of the revenue,” said former design head Wilson Miner. “You have to make it up with extreme volume, which is why you see Spotify going after every human being in the world.”

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Stuart Dredge

Music Ally's Head of Insight

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